Basic Business Ideas


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Businesses are no different than products or services. Their performance is solely dependent upon the quality of their design and the execution of that design. Know the basic elements of a business and what constitutes a business model.

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  • Basic Business Ideas

    1. 1. October 2008 Basic Business
    2. 2. <ul><li>For the purpose of this presentation ‘business’ will be defined as: </li></ul><ul><ul><li>Any organization engaged in producing goods and services </li></ul></ul>Basic Business Copyright: 2008
    3. 3. <ul><ul><li>Any organization engaged in producing goods and services. </li></ul></ul><ul><li>This definition does not limit the size of the organization nor does it put any restrictions on the industry in which the ‘business’ is competing. </li></ul>Basic Business Copyright: 2008
    4. 4. <ul><li>It is important to understand that all of these entities can be included in the definition of business: </li></ul><ul><ul><li>For-profit corporations </li></ul></ul><ul><ul><li>Non-profit corporations </li></ul></ul><ul><ul><li>Publicly traded organizations </li></ul></ul><ul><ul><li>Privately held organizations </li></ul></ul><ul><ul><li>Government agencies </li></ul></ul><ul><ul><li>Single business units </li></ul></ul><ul><ul><li>Departments within an organization </li></ul></ul><ul><ul><li>Employees </li></ul></ul><ul><li>And that the ideas in this presentation are applicable to all of these business entities. </li></ul>Basic Business Copyright: 2008
    5. 5. Ideas that can be applied at different levels are powerful. “As above, so below” These ideas are equally true at all levels. Basic Business Copyright: 2008
    6. 6. <ul><li>Since the beginning of commerce there have been three activities: </li></ul><ul><li>Selling of products or services * (Sales) </li></ul><ul><li>Supplying of products or services (Operations) </li></ul><ul><li>Accounting for profit or loss (Finance) </li></ul><ul><li>* Throughout this presentation I will use the word products to mean ‘products’ and/or ‘services’. </li></ul>Basic Business Copyright: 2008
    7. 7. <ul><li>Commercial Activity </li></ul><ul><li>Before currency existed we bartered </li></ul><ul><ul><li>People traded one set of goods and services for another. </li></ul></ul><ul><ul><li>Each person had to decide if the goods and services of the other person was equal to or greater than the goods or services they were offering. </li></ul></ul><ul><li>After currency has been created </li></ul><ul><ul><li>People exchange monetary currency for goods and services </li></ul></ul><ul><ul><li>We decide if the goods and services of the other person has a Value Proposition equal to or greater than the effort required to gain that currency. </li></ul></ul><ul><li>If the Value Proposition is great enough we make the exchange. If not we look else where for a better deal. </li></ul>Basic Business Copyright: 2008
    8. 8. <ul><li>At the end of the day you must: </li></ul><ul><li>‘Sell what you have’ (Sales) </li></ul><ul><li>‘Supply what you sell’ (Operations) </li></ul><ul><li>‘Account for profit or loss’ (Finance) </li></ul>Basic Business Copyright: 2008
    9. 9. <ul><li>‘ Sell what you have’ is a narrow definition. The goal is really the creation of demand for products. </li></ul><ul><li>The creation of demand for products is the result of: </li></ul><ul><li>Marketing </li></ul><ul><li>Sales </li></ul><ul><li>Product Development </li></ul><ul><li>Advertising </li></ul><ul><li>Merchandising </li></ul><ul><li>Customer Service. </li></ul><ul><li>All of those processes are grouped together for the overarching process called “Create Demand” . </li></ul>Basic Business Copyright: 2008
    10. 10. <ul><li>‘ Supply what you sell’ is also narrow. The goal of this process to have products available to the customer. </li></ul><ul><li>Having products available for customers is the result of: </li></ul><ul><li>Purchasing </li></ul><ul><li>Manufacturing </li></ul><ul><li>Assembly </li></ul><ul><li>Warehousing </li></ul><ul><li>Sourcing </li></ul><ul><li>Logistics. </li></ul><ul><li>Making products available does not require a company to actually produce the product but instead to ensure the purchased product is delivered. These processes are called “Fulfill Demand” . </li></ul>Basic Business Copyright: 2008
    11. 11. <ul><li>‘ Account for profit or loss’ used to be the sole activity to support the two primary processes of selling and supplying. Now there are also many other functions whose purpose is to enable the two primary processes to be as effective and efficient as possible. </li></ul><ul><li>Supporting the business consists of: </li></ul><ul><li>Finance </li></ul><ul><li>Accounting </li></ul><ul><li>Human Resources </li></ul><ul><li>Information Technology </li></ul><ul><li>Legal. </li></ul><ul><li>These processes are called “Support the Business” . </li></ul>Basic Business Copyright: 2008
    12. 12. <ul><li>One more overarching process that did not exist formally in earlier years is managing the business. This was done intuitively but now has a more formal approach. This process is the umbrella for the other processes. It is the glue that holds them all together. </li></ul><ul><li>Managing the business consists of: </li></ul><ul><li>Strategic Management </li></ul><ul><li>Operations Management </li></ul><ul><li>Managing Annual Plan </li></ul><ul><li>Communication. </li></ul><ul><li>These processes are called “Manage the Business” . </li></ul>Basic Business Copyright: 2008
    13. 13. Basic Business Framework Copyright: 2008 Basic Business is now - Basic Business was -
    14. 14. The term ‘framework’ when referencing a business speaks to the processes of a business. Processes are how work gets done and all work is process work. But a business is not only processes. Copyright: 2008 Business more than Processes
    15. 15. <ul><li>A business is not only processes </li></ul><ul><li>Goals are not processes </li></ul><ul><ul><li>Goals are part of the Capstone and create requirements </li></ul></ul><ul><ul><li>for the entire business </li></ul></ul><ul><li>Products are not processes </li></ul><ul><ul><li>Products are produced by processes </li></ul></ul><ul><li>Organizations are not processes </li></ul><ul><ul><li>Organizations execute processes </li></ul></ul><ul><li>Systems are not processes </li></ul><ul><ul><li>Systems support processes </li></ul></ul>Copyright: 2008 Business more than Processes
    16. 16. <ul><li>A business is all of these: </li></ul><ul><li>Capstone (Goals / Desired Strategies / Environment) </li></ul><ul><li>Products </li></ul><ul><li>Processes </li></ul><ul><li>Organizations </li></ul><ul><li>Systems </li></ul><ul><li>Which means a business model is the documented design of each of these components. </li></ul>Copyright: 2008 Business more than Processes
    17. 17. Business Model <ul><li>Five key components in every business model: </li></ul><ul><li>Capstone </li></ul><ul><li>Market Model </li></ul><ul><li>Process Model </li></ul><ul><li>Organizational Model </li></ul><ul><li>Systems Model. </li></ul><ul><li>Each component must be defined and quantified so that they can be measured and managed. </li></ul>Copyright: 2008
    18. 18. Create Demand Market Model and Create Demand are closely related. Market Model is the design. Create Demand is the process. Demand is the output of the process. Copyright: 2008
    19. 19. Create Demand How do businesses meet their sales goals? Copyright: 2008
    20. 20. By having the most compelling Value Proposition (VP) in the market place Copyright: 2008 Create Demand
    21. 21. Who decides whether a product has a compelling Value Proposition? The Customer Not you! Copyright: 2008 Create Demand
    22. 22. Value Proposition defines the: Factors that the customer will use to determine which product to buy Copyright: 2008 Create Demand
    23. 23. Before making a purchase each customer weighs your Value Proposition against your competitors. <ul><li>The product with the greatest VP gets the customer. </li></ul><ul><li>Basic Business. </li></ul>Copyright: 2008 Create Demand
    24. 24. There is another way to view Value Proposition. Value Proposition and Return on Investment is essentially the same thing from a customer’s perspective. Copyright: 2008 Create Demand
    25. 25. <ul><li>A customer wants to receive the best deal for the money s/he is spending. </li></ul><ul><li>The biggest screen </li></ul><ul><li>The clearest sound </li></ul><ul><li>The fastest car </li></ul><ul><li>Whatever you are buying you want to get the most for your money – you want the highest return on your investment. </li></ul>Value Proposition Copyright: 2008
    26. 26. <ul><li>Four components in every Value Proposition: </li></ul><ul><li>Desirability </li></ul><ul><li>Cost </li></ul><ul><li>Quality </li></ul><ul><li>Lead Time. </li></ul><ul><li>To win market share you do not have to be the best in each category but overall you have to have the best VP for the customer segment you are targeting. </li></ul><ul><li>Basic Business. </li></ul>Value Proposition Copyright: 2008
    27. 27. <ul><li>Personal application of the idea of Value Proposition. </li></ul><ul><li>The TV in my Great Room needed to be replaced. </li></ul><ul><li>Basic questions I needed to answer: </li></ul><ul><li>What size TV? </li></ul><ul><li>What kind of TV? (Plasma or LCD) </li></ul><ul><li>What brand? </li></ul><ul><li>What price range? </li></ul><ul><li>What features? (How many input devices) </li></ul><ul><li>Is the TV readily available? </li></ul><ul><li>Does the material of the TV reflect light (TV in room with </li></ul><ul><li>many windows and reflection is an issue) </li></ul><ul><li>Resolution (1920 x 1080) </li></ul><ul><li>Refresh rate – 120 Hz (for action films and football games) </li></ul><ul><li>Sound (types of sound and volume) </li></ul><ul><li>Ease of use </li></ul><ul><li>Design – is it aesthetically pleasing? </li></ul>Personal Experience Copyright: 2008
    28. 28. <ul><li>Desirability (30%) </li></ul><ul><li>What size TV? </li></ul><ul><li>What kind of TV? </li></ul><ul><li>(Plasma or LCD) </li></ul><ul><li>What features? </li></ul><ul><li>(How many input </li></ul><ul><li>devices) </li></ul><ul><li>Sound (types and </li></ul><ul><li>volume) </li></ul><ul><li>Ease of use </li></ul><ul><li>Does the material of </li></ul><ul><li>the TV reflect light </li></ul><ul><li>(reflection is an issue) </li></ul><ul><li>Design – is it </li></ul><ul><li>aesthetically pleasing </li></ul>Personal Experience Copyright: 2008 <ul><li>Price (20%) </li></ul><ul><li>Initial price </li></ul><ul><li>Delivery charge </li></ul><ul><li>Removal charge for </li></ul><ul><li>old TV </li></ul><ul><li>Set up fee for new TV </li></ul><ul><li>Quality (40%) </li></ul><ul><li>What brand TV? </li></ul><ul><li>Resolution </li></ul><ul><li>(1920 x 1080) </li></ul><ul><li>Refresh rate – 120 Hz </li></ul><ul><li>(for action films and </li></ul><ul><li>football games) </li></ul><ul><li>Warranty </li></ul><ul><li>Consumer reports </li></ul><ul><li>problems </li></ul><ul><li>Lead Time (10%) </li></ul><ul><li>Is the TV readily available? </li></ul><ul><li>How soon can it be </li></ul><ul><li>delivered? </li></ul><ul><li>This is how basic questions become a Value Proposition. </li></ul><ul><li>Each customer needs to define the attributes of each VP component. </li></ul><ul><li>What are the attributes of Desirability? Depends upon the customer. </li></ul><ul><li>Each customer needs to quantify the relative value of the VP components. </li></ul><ul><li>In my case Quality ranked the highest. I wanted the largest TV with the best </li></ul><ul><li>resolution and refresh rates available within a reasonable price range. </li></ul>
    29. 29. What will your Value Proposition look like? How do you weigh each component of the Value Proposition? Personal Experience Copyright: 2008
    30. 30. <ul><li>The VP is created by each organization </li></ul>Value Proposition It is the performance of the Create Demand, Fulfill Demand, Support the Business and Manage the Business processes that determine the Value Proposition. When you are competing it is not only your products that are competing but everything behind your products as well. Copyright: 2008
    31. 31. Alignment <ul><li>Just like the four sides of a pyramid need to be aligned with one another so do the four models of a business. </li></ul><ul><li>Market Model </li></ul><ul><ul><li>Must be aligned with the vision, mission and goals of the company </li></ul></ul><ul><li>Process Model </li></ul><ul><ul><li>Must be aligned with the Markets to deliver on the Value Proposition </li></ul></ul><ul><li>Organizational Model </li></ul><ul><ul><li>Must be aligned with the Processes </li></ul></ul><ul><li>Systems Model </li></ul><ul><ul><li>Must be aligned with the Organization </li></ul></ul>Copyright: 2008 <ul><li>Alignment must be designed into a business – it can not be managed in. </li></ul>
    32. 32. Business Model <ul><li>Five key components in every business model: </li></ul><ul><li>Capstone </li></ul><ul><li>Market Model </li></ul><ul><li>Process Model </li></ul><ul><li>Organizational Model </li></ul><ul><li>Systems Model. </li></ul><ul><li>Each component must be defined and quantified so that they can be measured and managed. </li></ul>Copyright: 2008
    33. 33. Business Model The relevance of a design is solely dependant upon the environment in which it exists. Every business design becomes obsolete because the environment will always change. Changing strategies has nothing to do with the business design. Business designs must be updated to adapt to the new environment. Copyright: 2008
    34. 34. <ul><li>Business Design requirements are contingent upon: </li></ul><ul><li>Goals </li></ul><ul><li>Environment </li></ul><ul><li>Desired strategies </li></ul><ul><li>Existing business design </li></ul><ul><li>Organizational capabilities </li></ul>Inputs into Business Design Copyright: 2008
    35. 35. Business Model Redesigned business models ensure businesses can achieve goals and execute desired strategies. The design is created within the context of the existing environment. First implement new design then execute desired strategies. Copyright: 2008